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The U.S. Newspaper Industry in Transition

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The U.S. Newspaper Industry in Transition The U.S. Newspaper Industry in Transition Suzanne M. Kirchhoff Analyst in Industrial Organization and Business July 8, 2009 Congressional Research Service 7-5700 www.crs.gov R40700 CRS Report for Congress Prepared for Members and Committees of Congress The U.S. Newspaper Industry in Transition Summary The U.S. newspaper industry is suffering through what could be its worst financial crisis since the Great Depression. Advertising revenues are plummeting due to the severe economic downturn, while readership habits are changing as consumers turn to the Internet for free news and information. Some major newspaper chains are burdened by heavy debt loads. In the past year, seven major newspaper chains have declared bankruptcy, several big city papers have shut down, and many have laid off reporters and editors, imposed pay reductions, cut the size of the physical newspaper, or turned to Web-only publication. As the problems intensify, there are growing concerns that the rapid decline of the newspaper industry will impact civic and social life. Already there are fewer newspaper reporters covering state capitols and city halls, while the number of states with newspapers covering Congress full- time has dwindled to 23 from the most recent peak of 35 in 1985. As old-style, print newspapers decline, new journalism startups are developing around the country, aided by low entry costs on the Internet. The emerging ventures hold promise but do not have the experience, resources, and reach of shrinking mainstream newspapers. Congress has begun debating whether the financial problems in the newspaper industry pose a public policy issue that warrants federal action. Whether a congressional response to the current turmoil is justified may depend on the current causes of the crisis. If the causes are related to significant technological shifts (the Internet, smart phones and electronic readers) or societal changes that are disruptive to established business models and means of news dissemination, the policy options may be quite limited, especially if new models of reporting (and, equally important, advertising) are beginning to emerge. Governmental policy actions to bolster existing businesses could stall or retard such a shift. In this case, policymakers might stand back and allow the market to realign news gathering and delivery, as it has many times in the past. If, on the other hand, the current crisis is related to the struggle of some major newspapers to survive the current recession, possible policy options to ensure the continuing availability of in-depth local and national news coverage by newspapers might include providing tax breaks, relaxing antitrust policy, tightening copyright law, providing general support for the practice of journalism by increasing funding for the Corporation for Public Broadcasting (CPB) or similar public programs, or helping newspapers reorganize as nonprofit organizations. Policymakers may also determine that some set of measures could ease the combination of social and technological transition and the recession-related financial distress of the industry. Congressional Research Service The U.S. Newspaper Industry in Transition Contents Introduction ................................................................................................................................1 Industry History..........................................................................................................................2 Industry Conditions.....................................................................................................................4 Industry Cost Cutting: Key to Survival? ................................................................................4 Declining Advertising Revenues, Recession, and the Internet ................................................5 Other Factors ........................................................................................................................7 Alternative News Sources .....................................................................................................9 Rise of the Web...........................................................................................................................9 Interdependence........................................................................................................................13 Searching for New Business Models ...................................................................................16 Nonprofits...........................................................................................................................18 Public Policy Issues ..................................................................................................................20 Congressional Action ................................................................................................................21 Industry Proposals...............................................................................................................21 Supporting the General Practice of Journalism ....................................................................22 Figures Figure 1. Change in National Advertising Spending, 2007-2008..................................................6 Figure 2. Newspaper Advertising Revenues from 2003- 2008....................................................14 Tables Table 1. Daily Print Newspaper Readership.................................................................................3 Table 2. Top 20 U.S. Newspapers: Print Circulation ..................................................................10 Table 3. Newspaper Website Readership....................................................................................12 Contacts Author Contact Information ......................................................................................................23 Congressional Research Service The U.S. Newspaper Industry in Transition Introduction The U.S. newspaper industry is in the midst of a historic restructuring, buffeted by a deep recession that is battering crucial advertising revenues, long-term structural challenges as readers turn to free news and entertainment on the Internet, and heavy debt burdens weighing down some major media companies. As the distress mounts—seven U.S. newspaper companies have filed for bankruptcy in the past year—lawmakers are debating possible legislation to assist the industry. Additionally, the Federal Trade Commission (FTC) will hold a series of workshops beginning in September 2009 to look at challenges facing newspapers, television, and radio in the Internet age.1 Publishers are experimenting with new business approaches, but there is no widely agreed-upon model to restore the link between newspaper content and earnings, which has been partially severed on the Internet. Newspapers depend on advertising for about 80% of revenues. Even after investing major sums in technology, and attracting millions of online readers, less than 10% of overall newspaper ad dollars are Internet-driven.2 At the same time, print readership is falling, further cutting into subscription and advertising revenues (see Table 1). Vin Crosbie, a noted Syracuse University professor and consultant, has predicted that more than half the approximately 1,400 daily newspapers in the country could be out of business by the end of the next decade.3 Concerns extend beyond the tens of thousands of reporters and editors losing their jobs. A robust, free press has been viewed by many as an essential check on government and business since the early days of the Republic. “The only security of all is in a free press,” Thomas Jefferson wrote in 1823.4 House Speaker Nancy Pelosi, in a March letter to the Justice Department, argued that current problems in the newspaper sector pose a significant challenge to democracy.5 Despite First Amendment sensitivities, Congress has intervened in the past to assist newspapers and other media, building a broad record of regulation and support. Federal actions include the 1970 Newspaper Preservation Act, providing limited exemption from antitrust law; laws allocating the public airwaves;6 copyright and fair content regulation;7 postal subsidies;8 and financial aid through the Corporation for Public Broadcasting (CPB) and indirectly through the National Endowment for the Humanities (NEH).9 Congress has ratified treaties governing fair use 1 Federal Trade Commission, “Extra! Extra! FTC Announces Workshop: ‘Can News Media Survive the Internet Age? Competition, Consumer Protection, and First Amendment Perspectives,’” May 19, 2009. 2 Pew Research Center’s Project for Excellence in Journalism, The State of the News Media 2009: An Annual Report on American Journalism. http://www.stateofthemedia.org/2009/index.htm. 3 Crosbie, Vin, “Transforming American Newspapers,” Corante, Aug. 20, 2008. http://rebuildingmedia.corante.com/ archives/2008/08/20/transforming_american_newspapers_part_1.php. 4 Thomas Jefferson to Lafayette, 1823. The Writings of Thomas Jefferson, Memorial Edition (Lipscomb and Bergh, editors) 20 Vols., Washington, D.C., 1903-04, Vol. 15, p. 491. See University of Virginia Library, Thomas Jefferson Digital Archive, Freedom of the Press. http://etext.virginia.edu/jefferson/quotations/jeff1600.htm#Top. 5 Letter from Nancy Pelosi, Speaker of the House, to the Honorable Eric Holder, Attorney General, March 16, 2009. 6 CRS Report R40009, Fairness Doctrine: History and Constitutional Issues, by Kathleen Ann Ruane. 7 CRS Report R40194,
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